Pages

Thursday, 8 June 2017

L'Oreal's €800m Body Shop price tag in doubt amid profit slump

L'Oreal's hopes of obtaining a bumper price for The Body Shop, the British-based ethical cosmetics retailer, have been dented by projections for a slump in profits this year.

Sky News understands that the French beauty products giant has informed bidders for The Body Shop that earnings before interest, tax, depreciation and amortisation (EBITDA) are likely to plunge from €80m last year to €65m (£56m) in 2017.

In 2013, the equivalent figure was €113m.

Sources said that L'Oreal's management board had met on Wednesday to assess a handful of offers for The Body Shop from CVC Capital Partners, the former owner of Formula One motor racing; Investindustrial, the Italian investor which owns a stake in Aston Martin; and Fosun, a Chinese conglomerate.

The owners of Renhe Pharmacy, another Chinese company, are also said to have explored a bid just weeks after signing a deal to take control of the Championship football club Reading, although they denied tabling a formal offer.

Two of the bidders are expected to be taken through to a final round of the auction, although one banker described hopes of an €800m price tag for The Body Shop as "unrealistic".

Advisers said that projections shared with bidders implied that the retailer would generate cashflow this year of just €15m - half the 2016 figure.

Some investment banks have refused to help finance takeover bids for The Body Shop because of the company's declining performance, according to City sources.

There are also questions about the viability of L'Oreal selling The Body Shop to a Chinese-backed bidder given the country's controversial record in animal testing of cosmetic products.

The UK-based chain was founded in 1976 by the late Anita Roddick and her husband Gordon, and has always proclaimed its abhorrence of animal testing.

In addition to Fosun, Investindustrial's bid for The Body Shop was reported this week to be backed by a vehicle connected to Jack Ma, the Chinese tycoon behind Alibaba Group.

The Body Shop has endured a lacklustre period since L'Oreal bought it for £650m in 2006.

Sales last year fell by about 5% at its 3000 stores in 66 countries around the world.

A number of private equity bidders have been courting executives to lead their offers, with Lazard handling the sale on behalf of L'Oreal.

CVC has enlisted Emmanuel Osti, a former boss of L'Occitane, the French cosmetics brand, and Rob Templeman, who has chaired Debenhams and led a string of other British retailers, including Homebase.

Investindustrial's bid is being led by a former boss of L'Oreal's Italian operations.